Yes it's possible, but expensive. You would need to either stroke it, or do extensive head work, up the compression and maybe custom cam. A twin 2 1/2" is borderline for 500hp. Go twin 3", you will immediately pick up 20-30hp just by doing that. They are getting 500rwhp in the states with LS1's every day. It will come down to how much money you want to throw at it.
Yeah
this article is by the guy who is admin for ls1tech, he also did most of the head / valve train engineering for my car, echoes exactly what you say. Ten years ago one of the unknowns at the bleeding edge of LS engineering was pushing dynamic compression into the high 8.x to get BMEP to hit 500 rwhp.
When I asked this dude to consult on my e85 build several years later we started at 9:1 dynamic (stock LS3 is 8.3) for premium petrol and through the magic of continuous VVT raised effective compression ratio right up into the mid 10s with the smallest combustion chamber and high squish / quench for mechanical octane, basically CR as high as physically possible from the 3.622" LS1 crank. Because ethanol under diesel-like compression is like safe controllable N2O.
The challenge is balancing compression vs speed (pumping loss) without increasing the circle to go around, as the LS1 crank has
potential to accelerate faster (RPM rate) and reliably 650+BHP.
Interesting thing about more oxygen in liquid form means gains to be had with intake (MAF) tuning, also with up to 100º lower EGT and different composition of ethanol exhaust (the Reynolds number?) affects the ideal pipe cross section for header design, and keeping velocity strong out the tailpipe. So I use different devices including shitty old 2.5" even though BHP would suggest 2x3".